Sharma v Sharma & ors [2013] EWCA Civ 1287

Analysis

In April 2003 qualified dentist Anushika Sharma acquired her first dental practice. In January 2007 she acquired a second practice and in July 2007 she was provided with an opportunity to purchase a third. This opportunity prompted a family meeting to discuss Anushika’s expanding empire. Jagesh Sharma (Sunny), Keshbala Sharma and Rajesh Sharma (Anushika’s then husband, mother-in-law and brother-in-law respectively) and Anushika were in attendance. During this meeting it was determined that a company (ADC Ltd) would be set up to purchase the third practice rather than Anushika doing this in her own name as this would be more tax-efficient. The shareholders of ADC Ltd would be Anushika, Sunny, Keshbala and Rajesh, who would each hold 25% of the shares. As the only dentist and the only shareholder working in the company Anushika would be the sole director of ADC Ltd and she would make all the decisions as to the day-to-day running of it.

Anushika provided evidence at trial that during this meeting she had asked the other shareholders whether she would be at liberty to purchase other practices outside ADC Ltd. Keshbala, the head of the Sharma family’s commercial operations, agreed that this was acceptable although she explained that this would not be the most tax-efficient way of Anushika acquiring further practices.

Over the next few years Anushika acquired a total of five practices within ADC Ltd and a further five practices within ADCUK Ltd (a company owned entirely by Anushika). This was in addition to the two practices which Anushika already held in her own name.

In June 2010 Anushika commenced divorce proceedings which gave rise to disputes over the legal and beneficial ownership of the dental businesses. The Sharma family alleged that Anushika was in breach of s175 of the Companies Act 2006 (the Act) as she had put herself in a position of conflict as a director of ADC Ltd by acquiring practices in ADCUK Ltd. They sought financial remedy. The trial judge found that ADCUK Ltd was the sole legal and beneficial owner of the five dental practices as the Sharma family had acquiesced to Anushika’s purchase of further practices in her own right. Their claim for a remedy was rejected and they appealed.

Held (dismissing the appeal):

1. (1) The nature of a director’s statutory duty under s175 of the Act is clearly set out in case law relating to fiduciary duties. Where a fiduciary duty exists then a director should not enter into engagements in which there is or can be a personal interest conflicting with that of the shareholders (Aberdeen Railway Co v Blaikie Brothers [1854]).
2. (2) If the other shareholders consent to the action which would otherwise be a breach of duty then there will be no breach. In order for consent to be effective the shareholders:
3. (a) Must have received disclosure of all material facts relating to the conflict (Boardman v Phipps [1967]); and
4. (b) Need not understand that the actions which have been consented to would otherwise be a breach of fiduciary duty (Knight v Frost [1999]).
5. (3) Acquiescence by the shareholders with knowledge of what was being done is as good as actual consent. Consent can be inferred from a party’s silence (Re Home Treat Ltd [1991]).
6. (4) The trial judge analysed the evidence with care and arrived at a coherent set of findings of fact. The appeal court need not interfere with those findings. The whole agreement between Anushika and the appellants was highly favourable to the appellants. There was no personal capital investment, nor was any real effort required by them in running the business. Anushika was also keeping two practices in her own name with their knowledge. In these circumstances is was not surprising that the appellants agreed to Anushika’s request.
7. (5) Neither party were familiar with fiduciary duties or the requirements of s175 of the Act but the evidence demonstrated that they clearly turned their minds to Anushika acquiring more practices outside the ADC Ltd structure. Keshbala made it plain she had no objection. These words amounted to consent. Sunny and Rajesh remained silent but their silence amounted to their consent because they deferred business decisions to Keshbala. They could not decently agree to take substantial shareholdings and stay silent at that point only to later disagree.

APPROVED JUDGMENT LORD JUSTICE JACKSON: [1] This judgment is in six parts, namely: Part 1. Introduction, Part 2. The facts, Part 3. The preliminary issues trial, Part 4. The appeal to the Court of Appeal, Part 5. The law, Part 6. Decision. Part 1. Introduction [2] This is an appeal against a decision that the …

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